Your company Mazengwa Ltd is planning to invest in Malaysia in order to increase shareholder value. It has to choose one of the following mutually exclusive projects. Year Cash Flow (R) Cash Flow (S) $100 000 $45 000 1 $14 500 $36 400 $17 200 $15 880 $20 000 $12 000 $138 600 $17 100 Using the Net Present Value (NPV) technique, which project would you invest in if your required rate of return is 12%?

Your company Mazengwa Ltd is planning to invest in Malaysia in order to increase shareholder value. It has to choose one of the following mutually exclusive projects. Year Cash Flow (R) Cash Flow (S) $100 000 $45 000 1 $14 500 $36 400 $17 200 $15 880 $20 000 $12 000 $138 600 $17 100 Using the Net Present Value (NPV) technique, which project would you invest in if your required rate of return is 12%?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You are International Business Manager at a UK based company. Considering high demand your company plans a full-scale expansion. Your company has identified USA and Europe as potential markets. You are requested to analyse both projects and advise. In considering such large project, you must work out the risk of each project, cost of capital and NPV. Allocate discount rate for each project accordingly and justify why you allocated this rate in your discussion. Discuss how international risks can be managed. Projected cash flows in respective currencies: Year Net Cash Flow – USD USA Net Cash Flow - EUR Europe0 -20 million -20 million 1 2 million 2 million2 4 million 3 million3 5 million 4 million4 6 million 8 million5 8 million 8 million Instructions:a. Discuss viability of both projects in today’s global business context and allocate discount rate. b. How much investment is needed for each project and what is the NPV of each project? c.…
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